The hidden costs of wildfires 

Property damage, business interruption, and environmental damage are just a few apparent risks caused by wildfires. 

But if third-party liability exposure hasn’t crossed the minds of insurers yet, it should now. 

Businesses found responsible for causing the ignition of a wildfire could face costly lawsuits from third parties, according to Allianz Commercial’s Wildfire Risk Trends report.  

“Two key factors that create potential liability exposures are human actions igniting the wildfire, and the resulting property damage or bodily injury affecting third parties,” reads Allianz’s report.

“These impacted parties may file liability claims against those responsible for starting the fire. Fires ignited by lightning or purely structural fires are not considered wildfire liability exposures.” 

Electricity transmission and distribution sectors are at high risk of exposure to wildfire-related liability claims.  

Electricity utilities, and in some cases, telecommunications or railway companies, have faced litigation and scrutiny for their role in causing wildfires. This is especially true in the U.S., but has been seen to a lesser extent in Canada and Australia, says Allianz.  

“Vegetation management contractors, inspection and maintenance contractors, and other entities undertaking field operations which trigger wildfires have also been the subject of litigation.” 

Though this form of litigation hasn’t fully emerged in Canada, liability trends that start in the U.S. are often a sign of what’s to come in Canada, experts have previously told Canadian Underwriter.   

Proving it 

This type of litigation is only successful if sufficient proof exists to show that an entity was responsible for triggering a wildfire and causing losses to third parties. 

“This proof can be difficult when there are multiple causes of wildfires at the same time in the same location,” the report says. “Nevertheless, electricity utilities in the U.S. and Australia have paid out significant sums for wildfire liabilities.” 

There’s also potential for class actions related to wildfire smoke emissions covering large areas, which is what happened in California, U.S., and New South Wales, Australia, in 2019 and 2020.  

Canada’s 2023 wildfire season, which burned the most area in the country’s recorded history, also caused smoke to travel cross-country and to parts of the U.S. Parts of New York issued air quality advisories then and again in 2025 following Canada-based wildfire smoke travelling from the west coast to eastern parts of the U.S. 

The use of fire suppression chemicals during wildfire response may also see firefighters subject to class action lawsuits. That’s because firefighting foam contains chemicals that can cause health and environmental impacts. This litigation risk is stronger when the fire suppression efforts fail.